Investing.com – The US dollar fell slightly on Tuesday, limping into what is likely to be a very close presidential election, the outcome of which could trigger significant price movements.
At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.1% to 103.655, after falling overnight to the lowest since October 21, compared with the highest levels since late July last week.
The dollar is retreating as the US elections approach
The dollar has been hit in part by a weakening “Trump trade,” as recent polls show Donald Trump and Kamala Harris facing a close presidential race with majority voting starting later Tuesday.
In recent weeks, financial markets have been leaning toward a victory for Trump, whose tariffs and immigration policies are seen by analysts as inflationary, leading to gains for U.S. yields and the dollar.
“With an exceptionally close US election around the corner, plus the outcome likely to have a binary impact on the currency markets, the FX options market is trading at respectful levels of volatility,” ING analysts said in a note.
“Given the dollar’s run-up in October, we think we need a Red Sweep for the dollar to rise much further. A Harris win would seem like a benign outcome and turn out to be dollar negative.
They also meet later this week and markets have positioned themselves for another rate cut, this time by 25 basis points instead of the massive 50 basis point cut we saw in September.
Traders will look for more clues from Fed Chairman Jerome Powell on the bank’s plans to cut rates further, especially as recent data showed persistent US inflation and resilience in the economy.
But a deterioration in the labor market was also seen, which could keep the Fed focused on further easing.
Euro linked to American result
In Europe, it traded 0.2% higher at 1.0893, after rising to 1.0914 in the previous session for the first time since October 15, with the euro benefiting from dollar weakness.
Despite these gains, the euro faces regional economic weakness, down 0.9% compared to September, and political uncertainty surrounding the US elections.
“Expect the fallout from the US elections to dominate this week,” ING added. “Ultimately, a Trump victory without the House of Representatives at the end of 2025 could be the worst-case scenario for EUR/USD, with global growth finding no protection from US tax cuts and the ECB potentially being forced to push rates deeper into accommodative territory to decrease.”
rose 0.2% to 1.2980, with a new rate cut of 25 basis points expected to be approved on Thursday.
Australian dollar gains after RBA meeting
rose slightly to 152.16, with the Japanese yen remaining near its weakest level in three months, while climbing 0.1% to 7.1077, with the focus shifting to a meeting of the NPC Standing Committee, which is expected to provide more clues about China’s plans for fiscal stimulus.
rose 0.5% to 0.6618 after policy remained steady on Tuesday, as widely expected.
However, RBA Governor Michele Bullock took a more hawkish stance during her press conference, saying she still believed there were upside risks to inflation.
“The Australian dollar could be the big winner if Harris keeps Trump out of the White House. In such a scenario, the threat of Chinese tariffs would decrease significantly,” ING said.
